The pound’s ascension in relation to the dollar continued on Thursday, with GBP/USD hitting its highest level in more than four years.
By Peter Martin
Thursday, April 17, 2014
By late morning in New York, the pound was trading at $1.6810 after hitting as high as $1.6843 earlier in the session, the highest level for cable seen since November 2009. The pound’s strength follows a report yesterday that showed UK unemployment falling to 6.9% last month, putting it beneath the threshold where the Bank of England’s forward guidance suggests the monetary policy committee may start to consider an interest rate rise.
The dollar, meawhile, has weakened in the wake of Janet Yellen’s speech on Wednesday afternoon at the Economic Club of New York in which she reiterated her belief that the current unemployment rate disguises significant slack in the labor market. This, and stubbornly low inflation, are likely to force the Fed into maintaining its accommodative stance for some time. ‘The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained,’ she said. Ms Yellen also made reference to the harshness of the winter and how that clouds many recent economic indicators, a theme touched on in the Fed’s Beige Book, which was released on Wednesday afternoon. The report differed little to the previous one apart from several districts reporting rebounds in economic activity alongside improvements in the weather (the word ‘weather’ appeared more than 100 times in the report), with economic expansion being characterised as modest or moderate by various districts, which has been a familiar refrain in the last few commentaries from the Fed.
Earlier in the week, we saw a very disappointing result from the New York Fed’s manufacturing survey, with conditions slowing down considerably in April, but this was counterbalanced on Thursday with the equivalent report from the Philly Fed, which rose to a reading of 16.6. this month, from March’s level of 9.0, attaining the fastest pace of growth since last September. The details beneath the headline level are just as encouraging, with new orders hitting a post-December high of 14.8 which will raise hopes for future production levels, and the impressive rebound shown in the Philadelphia region since February is another confirmation of the adverse effects of the abnormally heavy weather this winter. Jobless claims rose to 304,000 last week, which is a fairly solid result, given the large drop reported for the week prior (revised higher by just 2000 in the latest report). The trend of improvement is apparent in the four-week moving average, which falls to 312,000, some 17,500 better than it was looking a month ago.
Despite the upbeat nature of Thursday’s macroeconomic reports, there has been little net change on Wall Street, with the Dow Jones Industrial Average teetering around the break-even point for the day by noon in New York, while the S&P 500 index was up just 0.08% at 1863.8.This reticence on the part of investors reflects the mixed-bag nature of earnings reports so far for the last quarter. Heavyweight Dow component IBM reported earnings in line with expectations on Thursday, though revenue fell slightly short and resulted in the company’s share price falling more than 3%. Fellow Dow component Goldman Sachs reported a drop in quarterly profit, but comfortably beat expectations. The inertia of the stock market may also reflect caution ahead of the upcoming long weekend, with financial markets shut for Good Friday.
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